by Dan Krell
Are you considering purchasing a distressed property, such as a foreclosed home or a short sale, and need to make repairs on the home prior to moving in? Or maybe you have decided to stay in your present home for a few more years, but want to make updates or possibly expand the present space. The question you may have is, “how can I get a loan for these types of repairs and renovations?”
Even during the ongoing credit crunch, there are still renovation loans. One of the most popular renovation loans today is the FHA 203(k). Much like the FHA loan everyone is familiar with (FHA 203b), the FHA 203(k) loan can be used to purchase a home too! The difference is that the FHA 203 (k) provides funding for necessary repairs, updates and/or renovations on your new home; and it is all in one loan. Additionally, home owners needing funds to renovate, update, or expand their current homes can refinance with the FHA 203(k), as long as they have owned it for at least six months.
The FHA 203(k) was first introduced in 1978 through a change in the National Housing Act, section 203(k), which endorses the maintenance of the Nation’s housing. The FHA 203k is HUD’s primary device to meet their goal of “community and neighborhood revitalization” while expanding homeownership opportunities (HUD.gov). Additionally, HUD promotes the use of the FHA 203k to lenders and community organizations as a way to meet the goals of the Community Reinvestment Act.
Of course not all homes are eligible. Some of the eligibility requirements include that your home must be one to four units, the home must be at least one year old and meet neighborhood zoning requirements. FHA allows for major rehabilitation on homes that have been razed provided that the foundation still exists.
Improvements that are eligible for the FHA 203(k) include (but are not limited to) additions, unit conversions, and cosmetic repairs. However, luxury items and items that are not permanently part of the home (such as hot tubs) are not eligible. With the FHA 203(k), the home owner can add or expand a room, add a deck, convert a 1 unit home to a multi-unit home (up to four units), or convert a multi-unit home to a one unit home, and make cosmetic repairs (including giving your kitchen and bathrooms a facelift).
Do you want to make your home more energy efficient? Making your home “green” can save you lots of money down the road; however the transformation can cost quite a bit of money. The good news is that the FHA 203(k) loan allows for many “green” upgrades! Some items that may be eligible include replacing your HVAC and/or windows, waterproofing your basement, and installing solar panels.
The process of obtaining the FHA 203(k) is a little different than a standard mortgage, as additional underwriting requirements include architectural plans and repair estimates (materials and labor) from licensed contractors. The funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.
For more information about the FHA 203(k) mortgage, or to find a FHA 203(k) lender, you can visit the HUD website (HUD.gov).
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 15, 2008. Copyright © 2008 Dan Krell.